Marco Polo Seatrade seeks contempt sanctions against OSG International

By Jim Witters

Wilmington, Del., Aug. 3 - Marco Polo Seatrade BV is seeking contempt sanctions against OSG International, Inc., claiming OSG improperly set off about $1.8 million that is the property of the debtors' estates, according to documents filed Aug. 2 with the U.S. Bankruptcy Court for the Southern District of New York.

Marco Polo says the cash "is integral to the implementation of the carefully constructed first amended plan of liquidation and global settlement agreement."

The debtors and Credit Agricole Corporate and Investment Bank tried for several weeks to resolve the issue, the filing says. Marco Polo demanded the return of $850,000, but was rebuffed.

The improperly set off funds consist of $945,076 of postpetition earnings generated by the M/T Montiron for May and June 2012 and an $850,000 prepetition working capital reserve, according to court documents.

From that cash, Credit Agricole is to contribute nearly $1 million to be distributed to unsecured creditors under the liquidation plan.

"OSG's sole basis for withholding the funds is a setoff right it is asserting against the entire amount of cash it owes the debtors," court documents state.

OSG is the pool manager of the Aframax International Pool 2008, of which the debtors were a part.

"Notwithstanding the statutory setoff provisions of the bankruptcy code, OSG claims that the pool agreement trumps bankruptcy law and allows it to withhold a combination of pre and postpetition amounts it owes to the debtors to apply against what will unquestionably be - if subsequently crystalized - postpetition obligations of the debtors," the filing says.

The debtors say the bankruptcy code does not permit a creditor to set off its postpetition claims against its prepetition obligations to the debtors.

"OSG is not exercising a dollar-for-dollar setoff in which they are withholding only the $315,000 they claim they are owed. OSG is also withholding an additional $1.485 million in cash that it unquestionably owes to the debtors 'just in case' additional claims are alleged in the future," the court filing says.

A hearing on the motion is scheduled for 10 a.m. ET on Aug. 16.

Marco Polo Seatrade, an Amsterdam-based vessel owner, filed for bankruptcy on July 29, 2011 under Chapter 11 case number 11-13634.

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